The National Apartment Association (NAA) has resumed its
independent production of the Survey of Operating Income and Expenses in
Rental Apartment Communities. Major findings in this survey of the
professionally managed rental apartment industry show further
improvement in Net Operating Income (NOI) and more success in the
continuing quest to control operating costs.

A total of 2,298 properties containing 588,654 units are
represented in the report. Reporting of the data is composed of 1,975
market-rent properties containing 537,543 units and 323 subsidized properties containing 51,111 units.

The report presents data for four types of properties, including
garden and elevator structures, which are each segmented further into
properties with individually metered and mastered metered utilities.
Responses are dominated by garden properties with individually metered
utilities. They represented 89 percent of the market-rent properties and
69 percent of the subsidized properties. The analysis is therefore
centered on the garden properties with individually metered utilities.
Averages sizes of these garden properties were 268 units for the
market-rent units and 144 units in subsidized units. Rentable floor area
averaged 874 square feet for market-rent apartments and 811 square feet
for the subsidized units.

The report contains detailed data summarized for six geographic regions and metropolitan areas with at least 10 properties reported.
Fifty-four metropolitan areas met the separate reporting requirement for
market-rent properties. Sufficient numbers of subsidized properties were
submitted for eight metropolitan areas. Data are presented in three
forms: dollars per unit; dollars per square feet of rentable floor area;
and as a percentage of gross potential rent (GPR).

MARKET-RENT PROPERTIES

Net Operating Income (NOI)

Respondents reported a healthy rental apartment market based on
their operating, income, and expense data. NOI averaged 56 percent of
GPR in individually metered garden apartments reported in the survey.
NOI has risen throughout the 1990s and is well above the 43.8 percent
recorded a decade earlier in the NAA survey for 1988 data. In dollars
per unit it was $4,456 and $5.10 on a dollars-per-square-foot basis.

Gross Potential Rent (GPR)

GPR approximates contract rents. Average GPR was $7,963 per unit
($664 monthly), or $9.11 if translated into a per-square-foot of floor
area. Median GPR did not vary significantly from the average--$7,540
($628 per month). The range went from a high of $22,881 ($1,907 per
month) to a low of $3,650 ($304 per month).

Rent Revenue Collected

Rent revenue collected is a function of levels of rent received
minus vacancies, rent delinquencies, and rent write-offs. It tends to
follow the pattern of GPR. Rent revenue collected averaged $7,136 per
unit annually last year ($595 per month). Measured on a per-square-foot
basis, rent revenue averaged $8.16 last year among individually metered
garden properties.

Other Revenue Collected

Other revenue collected from operating sources includes receipts
from on-site laundries, cable, telephone systems, parking fees, and
other charges for services and amenities. These other operating revenues averaged $375 per unit (43 [cts.] per-square-foot unit) for individually
metered garden properties reported in the survey. Other non-rent
operating revenues ranged from a low of $6 per unit to a high of $2,363.
Median other operating revenues was $363 per unit.

Total Operating Expenses

Rental apartment management firms have devoted extensive efforts
toward controlling operating expenses in the 1990s to enhance profits
and increase competitiveness. Total operating expenses for individually
metered properties in the survey averaged $3,055 per unit ($3.50 per
square foot). These expenses accounted for 38.4 percent of GPR, down
from 44.3 percent in NAA's survey for 1995 data.

Economic Vacancy

Economic vacancy is a measure of potential income not realized over
a given period of time (one year in this survey). A 10.39 percent
economic vacancy rate was calculated for all individually metered garden
properties in the survey. This is somewhat high in historical terms and
contrasts with the very positive NOI. Economic vacancy in NAA's
independently produced surveys reached a low of 8.34 percent for 1995
data. During 1998 it was closer to the peak level of 11.84 per cent
reached in 1990, a recession year.

Turnover Rates

Turnover rates averaged 63 percent of total units among the
individually metered garden apartment properties reported in the survey.
Move-outs have been increasing over the past two years as the economy
continues to improve and the homeownership rate increases. Turnover had
reached a low of 59 percent in NAA's last independently-produced
operating and income survey for 1995 data. A peak turnover rate of 69
percent occurred during 1990. The high rate in 1990 reflected the
apartment market and national economic recessions.

Size of Property

Scale economies for total operating expenses measured on a
dollars-per-unit basis did exist for the market rent garden properties
with individually metered utilities. Measured on a
dollars-per-square-foot basis the pattern was not consistent. Properties
with less than 100 units had total operating expenses average of $3,130
per unit. Operating expenses declined throughout the other three size
categories. Those properties with 500 or more units had a $2,996 per
unit average. This is a modest 5 percent a difference, using the
dollars-per-square-foot basis, the smallest properties still had the
highest average at $3.59, and the other three had lower averages that
were close together. NOI in all three measures did rise as the size of
properties increased.

Age of Property

A decline in NOI measured in percentages of GPR is the most
pronounced result of the tabulation of the data by age of properties. It
is the highest at 61.1 percent for properties less than five years old.
It then drops to 59.4 percent for those five to nine years old, then to
56.6 percent for those 10 to 19 years old, and the lowest for those 20
or more years old at 50.6 percent. For the most part, this comes from
the levels of GPR. GPR and total operating revenues are the highest for
the newest properties and they then drop through each of the age
categories, with only small differences. Total operating expenses do not
vary widely between the age categories.

SUBSIDIZED PROPERTIES

Revenues

GPR for subsidized properties averaged $6,384 ($7.87 per square
foot) annually. This is 20 percent less than the $7,963 ($9.11 per
square foot) for their market rent counterparts. Rental revenues
averaged $6,000 per unit ($7.40 per square foot). Other operating
revenues in subsidized properties are significantly less than those for
market-rent properties. They averaged $195 per unit (24 [cts.] per
square foot) for the subsidized properties versus $375 per unit (43
[cts.] per square foot).

Operating Expenses

Operating expenses in subsidized properties tend to be higher than
for market rent properties. Subsidized properties reported in the survey
had total operating costs averaging $3,493 dollars per unit ($4.31 per
square foot). The market-rent property average was $3,055 per unit
($3.50 per square foot). They are higher on a per-unit and a
per-square-foot basis in all expense categories with the exception of
real estate taxes and marketing costs. It could be expected that market
rent properties would have the higher costs in those areas.

NOI

Subsidized properties, with their lower rents and higher operating
costs, will have lower NOIs. NOI for subsidized properties in the survey
averaged 42.3 percent of GPR versus 56.0 percent for the market rent
properties. The comparisons on a per unit basis were $2,702 versus
$4,456, and $3.33 per square foot versus $5.10.

Economic Vacancies

Economic vacancy rates tend to be lower in subsidized properties
because of their lower rents. A 6.02 percent average rate was calculated
for the subsidized properties versus 10.39 percent for market-rent
units.

Turnover Rates

Occupants of subsidized apartments have lower income and fewer
housing choices in most local markets and are less likely to move. The
turnover rate in subsidized units was 37 percent versus 63 percent for
market-rent units.

Sheehan is president of Regis J. Sheehan Data and Forecasting
Service, McLean, Virginia, and serves as NAA's consulting
economist.

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